Itek Corp. v. Chicago Aerial Industries, Inc., 127
| Citation | 248 A.2d 625 |
| Decision Date | 10 July 1968 |
| Docket Number | No. 127,127 |
| Parties | ITEK CORPORATION, a Delaware corporation, Plaintiff Below, Appellant, v. CHICAGO AERIAL INDUSTRIES, INC., a Delaware corporation; Fred T. Sonne; Adele F. Loeb Saks, individually and as surviving Executrix of the Estate of Ernest G. Loeb, Deceased; Elizabeth S. Loeb, Albert H. Loeb, II, and Henry S. Loeb, Individually and as surviving Executors of the Estate of Allan M. Loeb, Deceased; Alyn M. Loeb, Jane L. Sooy, Elizabeth Loeb Nathan, and Virginia Loeb; David Levinson and Victor C. Milliken, Defendants Below, Appellees. |
| Court | United States State Supreme Court of Delaware |
Appeal from the Superior Court in and for New Castle County.
Alexander L. Nichols and James M. Tunnell, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, and Harold M. Willcox, of Herrick, Smith, Donald, Farley & Ketchum, Boston, Mass., for appellant.
E. N. Carpenter, II, and Charles F. Richards, Jr., of Richards, Layton & Finger, Wilmington, for Chicago Aerial Industries, Inc., and Fred T. Sonne (Deceased).
Bruce M. Stargatt, of Young, Conaway, Stargatt & Taylor, Wilmington, for Adele F. Loeb Saks, as surviving executrix of the Estate of Ernest G. Loeb, deceased, Elizabeth Loeb Nathan and Virginia Loeb.
William Poole, of Potter, Anderson & Corroon, Wilmington, and Earl E. Pollock and Alan H. Silberman, of Sonnenschein, Levinson, Carlin, Nath & Rosenthal, Chicago, Ill., for Elizabeth S. Loeb, Albert H. Loeb, II, and Henry S. Loeb as surviving executors of the Estate of Allan M. Loeb, Deceased and Albert H. Loeb, II, individually.
This is an appeal by Itek Corporation (Itek) from the grant of summary judgment for the defendants in a breach of contract action brought by Itek against Chicago Aerial Industries, Inc. (CAI) and individuals who collectively represented in the contract negotiations CAI and its controlling stockholders.
Both Itek and CAI are producers of photographic equipment. At the time of the events which ultimately led to this litigation, approximately 50% Of the CAI stock was owned by its president and by the estates of two of its founders. The beneficiaries of the estates, particularly, desired to obtain cash for their CAI stock in order to diversify investments. Accordingly, in early 1964 the individual defendants, who made up a committee for the purpose, began to look for a way to realize cash for their CAI stock.
In the spring of 1964, Itek became interested in the acquisition of CAI's assets, either by merger or otherwise. CAI was interested in a combination of some sort Negotiations reached a climax in the fall of 1964 with the conditional acceptance by CAI of an offer by Itek to purchase all of CAI's assets at a total price based upon $12.00 per share of CAI stock plus one-twentieth of a share of Itek. This offer was intended to permit the passing on to CAI stockholders of approximately $13.00 per share in cash.
with Itek which would produce cash for its stockholders.
Ultimately, the agreement of the principal CAI stockholders to the Itek offer was obtained and the CAI Board agreed to recommend acceptance of the offer to the other CAI stockholders. The CAI acceptance was transmitted by telephone to Itek on January 4, 1965 subject to the following conditions:
(1) That Itek obtain the necessary financing;
(2) That an informal letter of intent be executed;
(3) That the details be worked out, and
(4) That formal documents be prepared to the satisfaction of the parties.
Itek arranged for the necessary financing and, on January 15, 1965, a letter of intent was drafted and signed by the parties. Since the letter is of prime importance in this lawsuit, it is set out in full:
'ITEK CORPORATION
'January 15, 1965
'Chicago Aerial Industries, Inc.
550 West Northwest Highway
Barrington, Illinois
'Gentlemen:
'This is to confirm the terms on which Itek Corporation (Itek) and Chicago Aerial Industries, Inc. (CAI) have agreed, with the approval of their respective Board of Directors, to work towards a combination of the two companies through the purchase of the assets and assumption of specified liabilities of CAI by Itek, all subject to adoption of a plan of liquidation and approval of such sale by CAI stockholders:
'1. The purchase price to be paid by Itek for all of the assets of CAI (including name and goodwill), subject to the liabilities to be assumed by Itek, is $6,759,600 in cash plus 28,165 shares of Itek common stock, par value $1.00 per share, subject to proportionate increase for outstanding CAI stock options exercised after December 31, 1964. The liabilities of CAI to be assumed by Itek are only those which shall be shown in CAI's balance sheet as of December 31, 1964, together with any liabilities incurred in the ordinary course of business after that date and such other liabilities of CAI as the parties may agree upon.
'2. Itek and CAI shall make every reasonable effort to agree upon and have prepared as quickly as possible a contract providing for the foregoing purchase by Itek and sale by CAI, subject to the approval of CAI stockholders, embodying the above terms and such other terms and conditions as the parties shall agree upon. If the parties fail to agree upon and execute such a contract they shall be under no further obligation to one another.
'3. Pending the completion of the contract CAI will permit Itek and its representatives to examine CAI's finances, contracts and business and interview its officers and customers, all as designated by CAI, it being understood that CAI shall not be obligated to divulge trade secrets or confidential matters.
'4. Itek represents to CAI that Itek has received assurance from Time, Incorporated that Time, Incorporated, subject to the approval of its Board of Directors, is prepared to invest $4,350,000 in Itek convertible debentures and stock, and has received assurance from a director of an investment company that it is prepared to invest $1,200,000 for such debentures '5. A joint announcement to the press in the form attached shall be made by both companies on the afternoon of January 19, 1965, for publication in the morning papers January 20.
and stock. Both such investments would be contingent upon and for the purpose of financing the purchase by Itek of CAI assets.
'If you agree to the foregoing please so indicate by signing and returning the enclosed copy of this letter.
'By Fred T. Sonne--President'
Thereafter, the parties commenced the preparation of a formal agreement. On February 23, 1965 CAI claimed that its potential tax liability would prohibit assuring the uncommitted CAI stockholders of an immediate distribution of $13.00 per share. Accordingly, CAI requested that Itek place a $3.00 floor on the value of the one-twentieth of a share of its stock, establish an escrow fund of $2.00 per share of CAI stock for the payment of all CAI liabilities, and guarantee payment of all CAI liabilities in excess of the escrow fund. Itek immediately agreed and so advised CAI on February 26, 1965.
Meanwhile, early in February, 1965, one of the committee representing CAI and its largest stockholders succeeded in reviving an earlier interest in purchasing CAI stock by Bourns, Inc. This culminated in a luncheon meeting between him and a Bourns representative on February 15, 1965. At this meeting, an offer was outlined under which Bourns would purchase the largest stockholders' CAI stock at $16.00 per share.
On February 23, 1965, as noted above, Itek and CAI representatives met and Itek agreed to the three new conditions insisted upon by CAI. Upon the departure of the Itek representatives, the CAI committee met with the representative of Bourns who was told that the CAI-Itek negotiations had reached an impasse and that they were free to go ahead with Bourns. On February 25, 1965 the formal Bourns offer was mailed, and on February 26, 1965 the principal stockholders accepted $1,000,000.00 in earnest money to cover the eventual sale of their CAI stock to Bourns at $16.00 per share.
On March 2, 1965 CAI by telegram notified Itek that it was terminating the transaction as a result of unforeseen circumstances and the failure on the part of the parties to reach agreement. This lawsuit followed.
Itek argues that the letter of January 15, 1965 is a binding contract and that CAI breached it by willfully refusing to negotiate in good faith toward the completion of the deal.
CAI argues that the letter of January 15, 1965 was, at most, a statement of intent, and was in no sense a binding contract. In particular, it points to the last sentence of paragraph 2 of the letter. That sentence is, 'If the parties fail to agree upon and execute such a contract they shall be under no further obligation to one another.' The argument is that since the parties in fact failed to agree upon a formal contract, the quoted sentence absolves CAI from liability.
The negotiations in this matter and all pertinent actions took place in Chicago which makes the law of Illinois applicable in the determination of whether or not Itek and CAI entered into an...
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